Cost-cutting Teva chucks plans for $300M facility

Dec 18, 2012 11:25am

By Tracy Staton and Eric Palmer

Teva Pharmaceutical Industries ($TEVA) has scrapped its $300 million plans for a warehouse and IT center in Philadelphia. The planned three-building complex, much anticipated by city leaders, is another casualty of CEO Jeremy Levin's restructuring.

Last week, Levin sketched out a 5-year plan to diversify the company's product line-up, expand geographically and cut up to $2 billion in costs. Under pressure from investors, who have been waiting for years to see Teva's promises translate into gains for shareholders, Levin wants to ratchet back on spending while bringing in new revenue to make up for the impending loss of patent protection on its top-selling drug, Copaxone.

A big part of that cost-cutting effort would involve overhauling Teva's manufacturing operations to make them more efficient. In light of those plans, a spokesperson said in an emailed statement, "[W]e have made the decision to cease development plans for the proposed distribution center ... in Philadelphia. At this time we cannot elaborate further about plans for this property."

The 1.1 million-square-foot project was to include a warehouse, distribution facility and information technology center that would employ about 200 Teva workers and create hundreds of new jobs, according to ThePhiladelphia Inquirer. According to an earlier story, the project was awarded a $2.5 million state development grant.

At last week's investor meeting, Teva's president of global operations said the company would move the "center of gravity" for manufacturing from Western to Eastern countries. By reducing excess capacity and concentrating production in larger, more efficient plants, the company can save $175 million, he said. Teva expects to save another $700 million a year by using its own ingredient plants, centralizing purchasing and locking in longer-term supply deals.

Meanwhile, Levin plans to zero in on new branded products--but not necessarily new molecules, which require lots more R&D effort. Rather, Teva would focus on new formulations of older products--including new drug-delivery methods--and new combo drugs. And Teva will focus on spreading its geographic reach, an endeavor exemplified by its new joint venture with South Korea's Handok.